Energy


Budget Review 2022–23 Index

Stephen McMaugh

The Government has outlined spending measures consistent with its broad approach to energy and emissions reduction, as detailed in its Long-Term Emissions Reduction Plan and Low Emissions Technology Statement 2021. The Minister for Industry, Energy and Emissions Reduction announced $1.3 billion of new investment on 29 March 2022 under two separate spending measures. The Budget provides $446.1 million, over 5 years from 2021–22, under an Energy and Emissions Reduction measure (Budget measures: budget paper no. 2: 2022–23, pp. 125–6). The balance of the $1.3 billion is a share of the funding for the Energy Security and Regional Development Plan measure, under which the Government has committed to provide a further $7.1 billion over 11 years from 2022–23 (Budget paper no. 2, p. 133). Energy-related components of this measure are noted below.

There are several components to the Energy and Emissions Reduction measure (Budget paper no. 2 , pp. 125–6).

  • Spending of $247.1 million over 5 years from 2021–22 (and $0.3 million per year ongoing) is intended to support a mix of activities: ‘private sector investment in low emissions technologies including hydrogen, development of a hydrogen Guarantee of Origin scheme and the development of a Biodiversity Stewardship Trading Platform’. Legislation to establish a framework to support a national voluntary agricultural biodiversity stewardship market, including an online trading platform, was introduced into Parliament in February 2022 (see the Bills Digest for further information).
  • The measure also includes $148.6 million over 5 years from 2022–23 to support the development of community microgrid projects in regional and rural Australia. This was welcomed by several commentators, including the Grattan Institute and the Clean Energy Council. However, the Climate Council viewed the spending as meagre, saying ‘the Federal Government has used tonight’s Budget to toss mere pennies at genuine emissions reduction initiatives, such as the regional renewable microgrids’.
  • The measure also provides $50.3 million over 2 years from 2022–23 to accelerate the development of priority gas infrastructure projects, and support investment in carbon capture and storage pipeline infrastructure. The Minister for Industry, Energy and Emissions Reduction announced 7 projects to be supported by this investment on 22 March 2022.

The Budget also contains two additional components under this measure. Firstly, changes to the Emissions Reduction Fund were announced by the Minister for Industry, Energy and Emissions Reduction on 4 March 2022. These changes will make it easier for some project proponents to sell Australian Carbon Credit Units on the voluntary market. Secondly, the release of Australian crude oil stocks held in the United States Strategic Petroleum Reserve in response to an International Energy Agency declared collective action, was also announced by the Minister for Industry, Energy and Emissions Reduction on 2 March 2022. The Budget states that the financial implications for these measures are not for publication due to commercial sensitivities (Budget paper no. 2: 2022–23 (pp. 125–6).

The second measure, the Energy Security and Regional Development Plan in the Infrastructure, Transport, Regional Development and Communications Portfolio, includes a range of investments aimed at low emissions Liquefied Natural Gas (LNG), clean hydrogen production and carbon capture and storage infrastructure, particularly in Darwin and the Pilbara (Budget 2022–23: regional ministerial budget statement 2022–23—A secure future for regional Australia, pp. 194–96).

These investments include:

  • $300 million to support low emissions Liquefied Natural Gas (LNG) and clean hydrogen production at Darwin, together with associated carbon capture and storage infrastructure
  • $200 million to increase onshore processing and value-add of iron ore exports, to support low emissions steel production in Indo-Pacific customer countries like Japan and Korea
  • $200 million to enhance Australia’s supply chain security through new low emissions manufacturing facilities (using hydrogen and hydrogen-derivatives like ammonia, as well as carbon capture utilisation and storage) in the Pilbara region
  • $100 million to de-risk private sector investment in firm generation and grid infrastructure to increase system strength and capacity in the Pilbara region
  • $100 million to support pre-Final Investment Decision activities and early works to make the Port of Newcastle ‘hydrogen ready’

While some of these investments appear targeted to specific projects, the Government has provided little detail on the types of program it will use to implement all of this spending beyond the statement that ‘these investments are subject to the completion of business cases that demonstrate net benefits, and co-investment by the private sector and relevant state and territory governments’ (Regional ministerial budget statement, p. 195).

A range of factors make it difficult to assess the impact of these measures. Despite significant domestic and international effort, the nascent hydrogen market will take time to develop further and any preference between green hydrogen or hydrogen derived from fossil fuels is yet to be tested. Other uncertainties in the gas market include the net zero emissions pledges of some of Australia’s most significant export destinations and the longer-term implications of recent energy supply crunches in some regions.

The Government’s new energy-related spending builds on the 2021–22 budget measures Emissions Reduction and New Investments under the Technology Investment Roadmap and Advancing Australia’s Gas Fired Recovery, which supported the development of carbon capture technologies, hydrogen hubs and increasing the gas supply (Budget measures: budget paper no. 2: 2021–22, pp. 138–9 and p. 135). It is also consistent with the Government’s expressed view that gas has a central role in the economic recovery from COVID-19 and in reducing emissions. The Prime Minister has previously described the Government’s approach as a ‘technology-first approach’ that ‘will see Australia achieve its emissions reduction goals while continuing to grow our export industries and also supporting our trading partners’ efforts to decarbonise.’ The Government has since outlined Australia’s technology-driven, long term emissions reduction plan in its updated Nationally Determined Contribution submission to the United Nations Framework Convention on Climate Change.

Stakeholder reactions

The Chief Executive of the Australian Petroleum Production & Exploration Association, Andrew McConville, stated ‘the Budget has reaffirmed the long-term role of the oil and gas industry in Australia’s economy and lower emissions future.’ The Grattan Institute welcomed support in the Budget for the development and deployment of low-emission technologies but also argued that ‘funding the net-zero transition from government coffers is not sustainable.’

Commentators expressed a range of other views about the energy measures in the Budget. The Climate Council said ‘significant funds are being spent on so-called “low emissions hydrogen” and the costly and unproven carbon capture and storage. And a further $50 million dollars is being directed to accelerate polluting gas projects.’ The Clean Energy Council criticised a lack of electricity transmission investment and long-term workforce planning, saying ‘support is lacking for engineers and specialist trades to support new infrastructure. The construction of key transmission infrastructure over the next five to 10 years relies on those skills, without which there can be no growth, let alone energy transition.’

 

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